FOMC Minutes

Meeting of Federal Open Market Committee

July 16, 1968

MINUTES OF ACTIONS

A meeting of the Federal Open Market Committee was held in

the offices of the Board of Governors of the Federal Reserve System

in Washington, D. C.,

PRESENT:

on Tuesday, July 16, 1968, at 9:30 a.m.

Mr. Martin, Chairman

Mr. Hayes, Vice Chairman

Mr. Brimmer

Mr. Daane

Mr. Galusha

Mr. Hickman

Mr. Kimbrel

Mr. Maisel

Mr. Mitchell

Mr. Robertson

Mr. Sherrill

Mr. Bopp, Alternate 1/

Messrs. Clay, Coldwell, and Scanlon,

Alternate Members of the Federal Open

Market Committee

Messrs. Francis and Swan, Presidents

of the Federal Reserve Banks of

St. Louis and San Francisco,

respectively

Mr. Holland, Secretary

Mr. Sherman, Assistant Secretary

Mr. Kenyon, Assistant Secretary

Mr. Molony, Assistant Secretary

Mr. Hackley, General Counsel

Mr. Brill, Economist

Messrs. Axilrod, Hersey, Kareken,1 / Mann,

Partee, and Reynolds, Associate

Economists

1/

Entered the meeting at the point indicated.

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Mr. Holmes, Manager, System Open Market

Account

Mr. Coombs, Special Manager, System Open

Market Account

Mr. Cardon, Assistant to the Board of

Governors

Mr. Williams, Adviser, Division of Research

and Statistics, Board of Governors

Mr. Wernick, Associate Adviser, Division of

Research and Statistics, Board of

Governors

Mr. Bernard, Special Assistant, Office of

the Secretary, Board of Governors

Mr. Baker, Economist, Government Finance

Section, Division of Research and

Statistics, Board of Governors

Miss Eaton, Open Market Secretariat

Assistant, Office of the Secretary,

Board of Governors

Messrs. Latham and Black, First Vice

Presidents of the Federal Reserve Banks

of Boston and Richmond, respectively

Messrs. Eastburn, Parthemos, Brandt,

Baughman, Jones, Tow, Green, and Craven,

Vice Presidents of the Federal Reserve

Banks of Philadelphia, Richmond, Atlanta,

Chicago, St. Louis, Kansas City, Dallas,

and San Francisco, respectively

Mr. Garvy, Economic Adviser, Federal Reserve

Bank of New York

Mr. Cooper, Manager, Securities and

Acceptance Departments, Federal Reserve

Bank of New York

Mr. Anderson, Financial Economist, Federal

Reserve Bank of Boston

By unanimous vote, the minutes of actions taken at the

meeting of the Federal Open Market Committee held on June 18, 1968,

were approved.

The memorandum of discussion for the meeting of the Federal

Open Market Committee held on June 18, 1968, was accepted.

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By unanimous vote, the action taken by Committee members

on July 2, 1968, approving an increase, effective immediately, in

the reciprocal currency arrangement with the Bank of France from

$100 million to $700 million, and the corresponding amendment to

paragraph 2 of the authorization for System foreign currency

operations, was ratified.

By unanimous vote, John H. Kareken was elected Associate

Economist of the Committee to serve until the first meeting of the

Committee after February 28, 1969, with the understanding that in

the event of the discontinuance of his official connection with

the Federal Reserve Bank of Minneapolis, he would cease to have

any official connection with the Federal Open Market Committee.

Mr. Kareken entered the meeting at this point.

By unanimous vote, the System open market transactions in

foreign currencies during the period June 18 through July 15, 1968,

were approved, ratified, and confirmed.

Mr. Bopp entered the meeting at this point.

By unanimous vote, paragraph 1C(1) of the authorization

for System foreign currency operations was amended to increase the

limit on outstanding System forward commitments to deliver foreign

currencies to the Stabilization Fund from $350 million to a level

to be determined by Chairman Martin (or, in his absence,

Mr. Robertson) in light of the participation of other countries

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in the proposed funding arrangement for sterling balances but not

exceeding $1,050 million equivalent, subject to the understanding

that the action would become effective upon a determination by

Chairman Martin (or, in his absence, Mr. Robertson) that it was

in the national interest.

By unanimous vote, the open market transactions in

Government securities, agency obligations, and bankers' acceptances

during the period June 18 through July 15, 1968, were approved,

ratified, and confirmed.

By unanimous vote, new procedures for System subscriptions

in Treasury cash refundings, as proposed in the Manager's

memorandum of July 10, 1968, were approved.

It was agreed that

a letter concerning the new procedures should be sent to the

Secretary of the Treasury.

Secretary's Note:

On July 18, 1968,

the following letter was sent to the

Secretary of the Treasury over the

Chairman's signature:

I am enclosing a memorandum prepared by the Manager

of the System Open Market Account regarding the handling

of System subscriptions to Treasury refunding offerings

in the light of recent innovations in Treasury debt

management techniques.

These innovations--which involved combining an

exchange offering of new securities with a cash

offering--have a number of obvious advantages from the

point of view of debt management and System operations.

There is, however, a disadvantage in that--for practical

reasons--the System's options for exchanging its holdings

of maturing issues are limited. As a result, the System's

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subscriptions tend to be predetermined by the Treasury's

choice of a particular debt management technique--a

situation that may not be the best for monetary

management. This anomalous situation could be avoided

if the suggestions contained in the memorandum were

adopted by the Treasury and I commend them to you.

I emphasize that what is involved is a technical

problem and not a question of basic relationships between

the Treasury and the Federal Reserve. I know that we

both feel strongly that any Treasury offering must meet

the test of the market and that the Treasury does not

want to look to special System support of its financing

operations. I am sure that we would agree also that it

is essential for the Federal Reserve to have ample

facilities for rolling over its holdings of maturing

issues, including the possibility of subscribing to both

long- and short-term issues in any optional Treasury

refunding operation.

By unanimous vote, the Federal Reserve Bank of New York was

authorized and directed, until otherwise directed by the Committee,

to execute transactions in the System Account in accordance with

the following current economic policy directive:

The information reviewed at this meeting indicates

that over-all economic activity continued to expand

rapidly in the second quarter, with inventory accumula

tion accelerating while the rise in capital outlays and

in consumer spending slowed. The new fiscal restraint

measures are expected to contribute to a considerable

moderation of the rate of advance in aggregate demands.

Industrial prices have been increasing less rapidly than

earlier but consumer prices have continued to rise

substantially and wage pressures remain strong. Growth

in bank credit and time and savings deposits has been

moderate on average in recent months; growth in the

money supply has been larger as U.S. Government deposits

have been reduced. Conditions in money and capital

markets have eased somewhat, mainly in response to the

increase in fiscal restraint. Although there recently

have been large inflows of foreign capital, the U.S.

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foreign trade balance and underlying payments position

continue to be matters of serious concern. In this

situation, it is the policy of the Federal Open Market

Committee to foster financial conditions conducive to

sustainable economic growth, continued resistance to

inflationary pressures and attainment of reasonable

equilibrium in the country's balance of payments.

To implement this policy, while taking account of

forthcoming Treasury financing activity, System open

market operations until the next meeting of the Committee

shall be conducted with a view to accommodating the

tendency toward somewhat less firm conditions in the

money market that has developed since the preceding

meeting of the Committee; provided, however, that

operations shall be modified, to the extent permitted

by Treasury financing, if bank credit appears to be

deviating significantly from current projections.

It was agreed the next meeting of the Committee would be

held on Tuesday, August 13,

1968, at 9:30 a.m.

The meeting adjourned.

Secretary